Correlation Between Taiwan Paiho and Power Wind

Can any of the company-specific risk be diversified away by investing in both Taiwan Paiho and Power Wind at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Taiwan Paiho and Power Wind into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Taiwan Paiho and Power Wind Health, you can compare the effects of market volatilities on Taiwan Paiho and Power Wind and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Taiwan Paiho with a short position of Power Wind. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Paiho and Power Wind.

Diversification Opportunities for Taiwan Paiho and Power Wind

-0.3

Correlation Coefficient

Taiwan Paiho  Power Wind

Very good diversification

The 3 months correlation between Taiwan and Power is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Paiho and Power Wind Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Wind Health and Taiwan Paiho is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Taiwan Paiho are associated (or correlated) with Power Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Wind Health has no effect on the direction of Taiwan Paiho i.e., Taiwan Paiho and Power Wind go up and down completely randomly.

Pair Corralation between Taiwan Paiho and Power Wind

Assuming the 90 days trading horizon Taiwan Paiho is expected to under-perform the Power Wind. But the stock apears to be less risky and, when comparing its historical volatility, Taiwan Paiho is 1.26 times less risky than Power Wind. The stock trades about -0.03 of its potential returns per unit of risk. The Power Wind Health is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  11,150  in Power Wind Health on December 30, 2024 and sell it today you would earn a total of  1,650  from holding Power Wind Health or generate 14.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Taiwan Paiho  vs.  Power Wind Health

Taiwan Paiho

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taiwan Paiho has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Taiwan Paiho is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Power Wind Health

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Power Wind Health are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Power Wind showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Paiho and Power Wind

The main advantage of trading using opposite Taiwan Paiho and Power Wind positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Paiho position performs unexpectedly, Power Wind can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Power Wind will offset losses from the drop in Power Wind's long position.

The idea behind Taiwan Paiho and Power Wind Health pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.